Why an Increasing Number of Homebuyers Are Choosing the Mortgage Solution Associated with the 2008 Housing Crash

Main Insights

• In September, adjustable-rate mortgage (ARM) applications made up 12.9% of all mortgage requests—the highest proportion since 2008. However, as fixed mortgage rates have recently declined, the share of ARMs has dropped to between 6% and 8%.

• ARMs played a major role in the 2008 housing downturn, as many borrowers with low credit scores struggled to keep up with payments when their rates increased.

Over the past three years, elevated mortgage rates have posed challenges for prospective homebuyers, prompting some to consider a loan type that was a key factor in the 2008 housing crisis.

Adjustable-rate mortgages, or ARMs, start with a fixed interest rate for a set period before adjusting—often upward—based on market trends. As mortgage rates have consistently stayed above 6%, more buyers are opting for ARMs in hopes of securing lower initial payments.

Although ARMs expose homeowners to the risk of higher payments if rates rise, industry experts say that today’s stricter lending standards have helped reduce the potential dangers associated with these loans.

“At this point in time, buyers using ARMs generally face minimal to low risk,” explained Phil Crescenzo Jr., vice president of the Southeast Division at Nation One Mortgage Corporation, in an email interview.

According to the Mortgage Bankers Association, ARM usage surged in 2025, peaking at 12.9% of all mortgage applications in mid-September—the highest since 2008. Since then, as mortgage rates have eased, the proportion of ARM applications has fallen. By comparison, only about 6% of buyers chose ARMs after the 2008 housing crash.

Why More Borrowers Are Choosing ARMs

When mortgage rates dipped below 3% in 2021, ARMs became less popular, according to MBA data. But as rates climbed by over three percentage points in 2022—sometimes exceeding 7%—interest in adjustable-rate loans increased accordingly.

One factor driving the renewed interest in ARMs is that, with short-term interest rates falling over the past year, these loans have offered more attractive introductory rates.

ARMs can provide substantial savings for homebuyers. For instance, MBA data shows that in late December 2025, a five-year ARM carried an initial rate of about 5.79%, compared to 6.31% for a standard 30-year fixed-rate mortgage. On a $400,000 loan, this could mean saving around $200 per month in payments.

Important Note

Demand for ARMs typically moves in the opposite direction of fixed-rate mortgages. When fixed rates are high, borrowers are drawn to ARMs for their lower starting rates. Conversely, when fixed rates decrease, ARMs become less appealing as the potential savings diminish.

ARMs Provide Savings While Lenders Manage Risk

ARMs generally feature a lower initial interest rate that adjusts upward after a set period. A common example is the 5/1 ARM, which offers a fixed rate for five years before annual adjustments begin. These loans often include caps on how much the rate can increase.

Timing is crucial for ARM borrowers, as they may face higher payments once the introductory period ends.

“If you have an ARM, you’ll want to monitor the market and consider refinancing into a fixed-rate loan before the adjustable period begins,” Crescenzo Jr. advised.

If interest rates are higher when the fixed period ends, borrowers could see their payments rise to unaffordable levels.

This scenario contributed to the 2008 housing collapse, when borrowers with poor credit saw their ARM payments spike and many defaulted, triggering a wave of foreclosures that shook the housing market.